Ryan Petersen, founder and CEO of Flexport, discusses the logistics of global trade, drawing parallels between modern supply chains and historical examples like Pablo Escobar’s drug cartel, the Dutch and British East India Companies, and the evolution of trade finance, maritime choke points, and the fragility of the current global trading order.
Pablo Escobar as a logistics operator
Pablo Escobar was primarily a logistics entrepreneur within the Medellín Cartel, responsible for the transportation and smuggling of cocaine across international borders.
His role involved managing an underground supply chain under constant threat from law enforcement and rival groups, making it far more complex than legal logistics.
The term “cartel” originally refers to an alliance of independent producers or companies coordinating supply and pricing, similar to OPEC.
Incoterms and their role in trade and drug trafficking
Incoterms (International Commercial Terms) define responsibilities between buyers and sellers in international trade, such as who pays for shipping, insurance, and customs duties.
Common terms include FOB (Free On Board), where the seller delivers goods to the port and the buyer assumes risk, and DDP (Delivered Duty Paid), where the seller handles all costs and risks until delivery.
In illegal drug trade, these same terms are used—El Chapo was recorded negotiating whether heroin shipments were DDP or FOB, highlighting that border crossing represents up to 80% of the cost.
Tariff fraud in the era of Trump’s tariffs
High U.S. tariffs (peaking at 150%, now around 35%) have created massive incentives for importers to under-declare the value of goods.
Chinese merchants selling on Amazon are allegedly declaring inflated values to reduce tariff payments, effectively cheating the system.
Amazon has become the largest freight forwarder on the trans-Pacific route, partly due to this fraudulent activity.
The U.S. allows foreign companies to import without establishing a domestic legal entity, making enforcement nearly impossible.
Chinese export data shows $112 billion more in exports to the U.S. than what is declared upon import, suggesting widespread undervaluation.
Petersen has lobbied Washington to require U.S. entities for importers, but officials have not acted, possibly because they prioritize other issues or lack incentive to collect revenue when they can print money.
Reframing the issue as a national security threat—given unrestricted imports of fentanyl or weapons—might be more persuasive.
Historical evolution of global trade
Trade predates art, with evidence of long-distance exchange going back 40,000 years.
Early empires like Rome relied on grain imports from Egypt.
Venice dominated Mediterranean trade from ~1100 to 1204, with the Crusades partly motivated by access to Eastern trade routes.
The region of modern-day Israel was a critical trade nexus before the Suez Canal.
Banking and logistics were once inseparable—Wells Fargo and American Express began as freight forwarders moving gold in the American West.
Portuguese exploration and the spice trade
The Portuguese, led by Prince Henry the Navigator, pioneered systematic exploration using early venture capital.
They developed key technologies like the caravel, astrolabe, and marine chronometer (essential for longitude).
Spices from Indonesia (Maluku Islands) were extremely valuable due to their high value-to-weight ratio and long shelf life.
Markups could reach 1,000x or more by the time spices reached Europe.
Vasco da Gama rounded the Cape of Good Hope in 1498, bypassing Islamic trade barriers and opening direct sea routes to India.
Rise and fall of trading empires
The Dutch East India Company (VOC) was the world’s first joint-stock company, created to consolidate competing Dutch trading ventures into a monopoly.
It functioned as a de facto government, ruling colonies and waging wars.
The British East India Company followed, initially reluctant to conquer India but eventually taking control amid chaos caused by its own trade disruptions.
It ruled India for nearly a century before the British Crown assumed direct control.
Monopolies were secured through political bribery—politicians received shares in exchange for exclusive trading rights.
Opium trade and its consequences
Britain struggled to find goods China wanted, leading to a massive trade deficit paid in silver.
To reverse this, the British East India Company promoted opium grown in Afghanistan and India.
By the mid-19th century, 20–30% of China’s population was addicted.
When China tried to ban opium, Britain responded with military force, burning the Summer Palace and imposing unequal treaties.
The Forbes family of Boston (unrelated to Forbes magazine) controlled ~20% of the opium trade into China.
John Kerry is a descendant; his family still owns a large private island near Martha’s Vineyard.
China remembers this history—Petersen speculates that diplomatic slights, like the missing red carpet for Obama, may reflect lingering resentment over the opium wars.
Jewish trading networks and financial innovation
Ethnic minorities like Jews had advantages in long-distance trade due to high internal trust and shared legal frameworks.
The bill of lading—a document serving as title to goods—was a crucial innovation enabling trade without moving physical gold.
Under Roman law, debts were personal and non-transferable; under Talmudic (Jewish) law, debts could be sold, forming the basis of modern bonds and equities.
This allowed paper-based trade and laid the foundation for capitalism.
Even today, ~5% of Flexport customers require original paper bills of lading, showing how legacy systems persist.
DHL’s origin as a document courier network
DHL was founded to solve a timing mismatch: shipping containers arrived faster than the mail carrying bills of lading.
Early DHL used travelers as couriers—anyone could sign up, get a plane ticket, and carry a duffel bag of shipping documents.
This informal network ensured title transfers could happen upon cargo arrival.
Maritime choke points and modern vulnerabilities
The 2022 Ever Given blockage of the Suez Canal disrupted supply chains for weeks, affecting thousands of containers.
Since late 2023, Houthi attacks in the Red Sea have forced container ships to reroute around Africa, adding ~3 weeks and increasing ocean freight costs by ~50–60%.
The Strait of Hormuz is more critical: 20% of the world’s oil passes through it, with no viable alternative route.
Closure threatens not just oil but also petrochemicals, fertilizers (30–50% of global supply from the Middle East), and helium (30% from Qatar), essential for semiconductors and rocket fuel.
Air India has already cut international flights by 10% due to fuel shortages.
Countries with strong governments may gain advantage by securing oil via state-to-state deals.
The post-WWII global trade order under strain
After WWII, the U.S. Navy guaranteed freedom of navigation, especially at key chokepoints: Hormuz, Suez, Bab el-Mandeb, Gibraltar, Panama Canal, and Malacca Strait.
In return, allies opened their markets to U.S. goods, leading to deindustrialization and trade deficits.
Trump’s policies reflect rejection of this bargain—he questions what America gained from opening its markets.
Current crises test whether the U.S. can still secure these routes: carrier groups failed to stop Houthi attacks, and Hormuz remains closed.
If the order collapses, trade may reorganize around regional blocs or national power rather than open markets.
Resilience and risk in complex systems
The global economy is a complex adaptive system—resilient until it isn’t.
Past predictions (e.g., famine from Ukraine war grain disruptions) proved wrong due to adaptation (Middle East increased fertilizer exports).
But losing 20% of global oil supply could trigger cascading failures.
While U.S. energy exports are at record highs, benefiting Texas and national power projection, the global economic pie may shrink, causing widespread suffering.
Petersen warns against zero-sum thinking: trade creates wealth, but only if the underlying physical and political infrastructure holds.
